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Own home free and clear

Chris Farrell Jul 13, 2009

Question: I still owe about $36,000 on a 5 1/2% mortgage on a co-op. I’m wondering if I should take my savings & pay if off since my money market & CDs are only paying a bit more than 1%. (!!!) But, I get a tax deduction on the interest paid on the mortgage, although soon the $400+ monthly payment will probably soon go mostly for principal, & then there won’t be a tax deduction–right? Natalee, Scarborough, NY

Answer: Assuming 1) you like the co-op and 2) you will still have savings to tap in an emergency, it can make financial sense to pay off the mortgage. That’s a 5.5% return on investment which, as you say, is a lot better than 1% or so. What’s more, my guess is that the value of the mortgage interest deduction is not only minimal, but it is far below what you can get by simply taking the standard deduction. Own your home free and clear.

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